Your lawyerJan Dop, LL.M.
Jan Dop assists national and international enterprises in all facets of their day-to-day business operations. He specializes in personnel, real estate and issues involving public authorities. Jan is Head of our Embassy Desk, that serves Embassies, Consulates, diplomats and expats. He has been a lawyer at Russell since 1995, and became a partner in 2011.
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4 points to consider when dismissing a statutory director
A statutory director or director under the articles of association often has a dual legal relationship with the company: on the one hand a relationship under corporate law, on the other hand a relationship under employment law. This means a statutory director is also an employee. However, a dismissal of a director is different from that of a regular employee.
Dismissal of statutory director
Statutory directors are appointed and dismissed by the general meeting of shareholders (GMS; in Dutch: algemene vergadering van aandeelhouders, AVA) or the supervisory board. The articles of association or the law determine who is competent. In order to dismiss a director, a legally valid dismissal decision has to be taken. This is the case if the legal and statutory corporate rules have been observed.
A legally valid dismissal decision under corporate law also results in the termination of the employment contract with the director, unless termination is prohibited or the parties agreed otherwise. In practice, this frequently causes problems. In the light of recent case law, we would like to point out to you a few points to consider.
Points to consider
1. Corporate law is not employment law
The assessment of the dismissal under corporate law, on the one hand, and under employment law, on the other hand, is strictly separate. This was confirmed by the District Court of Gelderland in a decision of 19 May 2020. The dismissed statutory director argued that the reasonableness of the corporate dismissal also had to be checked against employment standards. However, according to the District Court, there is no room for this when assessing the validity of the corporate dismissal. The assessment of the dismissal under employment law cannot result in the annulment of the valid dismissal under corporate law, it can only be converted to fair compensation of the statutory director.
2. End of corporate law relationship, continuation of employment law relationship?
The link between dismissal under corporate law and dismissal under employment law can cause problems if the employer wishes to continue the employment and there is no agreement on this. This can be seen, for example, from a decision by the District Court of Gelderland of 28 February 2020. The GMS decided on dismissal of the employee as a statutory director and argued to continue the employee’s employment as a sales manager. The employee did not agree with the demotion and argued that the dismissal under corporate law had also resulted in a dismissal under employment law, for which a reasonable ground would be lacking. The Court agreed with the employee’s point of view and awarded a fair compensation of € 80,000 (gross), a fixed compensation of € 34,067.52 (gross) and transition compensation of € 102.204 (gross).
3. Consequence of immediate termination of dual legal relationship
Please note that not only the dismissal under corporate law but also the dismissal under employment law takes effect immediately. This can be seen from a decision by the District Court of The Hague from 5 June 2020. In this case, the statutory director was dismissed with immediate effect by the general meeting of shareholders, both under corporate law and employment law. The director demanded a fair compensation but submitted the application for this too late. Therefore, the director’s application was declared inadmissible. Regardless of the lawfulness or unlawfulness of the dismissal, the time-limits under employment law had started to run from the actual termination of the dual legal relationship.
4. Dismissal with immediate effect
A dismissal with immediate effect also involves dual and immediate dismissal. The District Court of the North Netherlands dealt with a statutory director’s dismissal with immediate effect in two decisions of 7 May 2020. For many years, a director under the articles of association had granted himself additional hours of leave. After the supervisory board had suspended the director, the GMS decided on the director’s dismissal with immediate effect. The director contested the dismissal: there would be no legally effective dismissal decision and/or dismissal with immediate effect. However, the court decided that the dismissal decision of the GMS was legally valid, as the legal and statutory requirements to this end had been met. The employment law requirements for dismissal with immediate effect had also been met. There was an urgent cause and the dismissal was made without delay, even though the dismissal had taken place 11 days after the notification of the urgent cause. After all, the minimum notice period for the GMS, in which the dismissal with immediate effect was decided upon, had to be observed.
In separate proceedings, the director’s employer claimed a fixed compensation in connection with dismissal with immediate effect and a compensation for wrongful act. The Court allowed both claims, because of the financial disadvantage of the employer and the far-reaching negligence of the director.
These recent decisions once again confirm the importance to meet both the requirements under corporate law and employment law to effect a legally valid dismissal. In the event of a dismissal of a statutory director, keep in mind the rules and regulations that must be complied with to make a dismissal legally valid, both under corporate law and employment law.
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